MLG Oz Limited (MLG) Earnings Call Transcript

Good day, ladies and gentlemen, and thanks for taking the time to jump online today to allow us to walk you through our financial year results. I'm sitting here today, so pretty proud of what the team has been able to achieve across the year and have the opportunity to deliver what we think is a material result for the business and a direct reflection of what we've been able to achieve across the year. At a high level, if we look at actual delivery of numbers, we saw revenue increase to sort of $540 million. Importantly that -- and particularly in the second half, and we'll focus on this a little bit more in the slide pack as we get through it, but a material uplift in EBITDA, both holistically, but the percentage line as well, material uplift in EBIT and NPAT, a material reduction in debt across the period, resulting in a much higher value at NTA and gearing further reduction -- further reduced. From a highlights perspective, if I look across the year, that strong revenue was a combination of planning, particularly through the first half. Obviously, we reported a slightly slower first half and guided the market to the fact that we thought the second half was going to be materially stronger. And as you can see by the result, that played out quite well and was managed effectively very well by the team. When we look at what we're able to achieve through the deployment of fleet, the adjustment of rates, we did see that really delivered through the second half and incrementally really drive an uplift both in terms of total profit delivered, but more importantly, that percentage shift to sort of hitting that run rate of 13.5% through the second half. Really a significant uplift in profit in the second half of $36.8 million compared to the first half, which was really a direct reflection of that planning delivery. Strong cash flow across the year did allow us to further invest and set ourselves up for the year to come. And as I touched on previously, that purchase of fleet has really set us up. So see ourselves in a good position, strong result and really pleased with what the team has been able to achieve across the year. Again, that further compound growth as the business has grown across the years, we've been able to continuously deliver. As I've touched on, as we see processing hubs expand and having our business model really wrapped around the support of processing infrastructure. As every year goes by, the expansion, the distance grows, we are seeing that compound growth in the business sort of sustained at a material level. For those of you that aren't across the story, our business is one that is really built around the support of critical processing infrastructure. So if you were to break the business down into segments, and we don't operate the business this way, but if you were to break down into segments, we have our core functions of civil and mining, crushing and screening, bulk haulage and site services and construction materials. But we have an integrated model that is really designed to support our customers' processing infrastructure. So what does that actually mean? As we have seen particularly the gold industry, but now further resource miners such as iron ore miners and base metal miners transition towards, we have seen a real growth in centralized processing hubs being fed from satellite operations. And to do that, you need a suite of services. You need the bulk haulage provision, you need crushing and screening, you need provision to deliver your tails management and your road management. The offering that we have is very much designed to wrap around the principles processing facility and facilitate their business as they continue to expand their operational footprint over years. It's one that has seen us generate the capacity to have very annuities earnings. The processing hubs typically don't close. They run for years, and they withstand the commodity price cycle. And we've been able to demonstrate that by ensuring that we can deliver services. We are very much ingrained in our customers' supply chain and become integral to their delivery. If you look at our customer base, you'll see that we are really driving our revenue through both a combination of Tier 1, but also some juniors, particularly in the gold space. But fundamentally, the order book is made up by a very strong and robust customer base that have themselves been able to deliver growth over multiple of years. And by leveraging ourselves back against those customers, we are very much along for the journey and continuing to grow ourselves. Importantly, you will see that gold did contribute materially across the year. I think last time we reported, gold was sort of making up 86%. We did see the growth in gold and a slight retraction in our crushing business in the iron ore space that have that pie graph sort of deliver materially more from a gold perspective. Importantly, the recent wins with Rio Tinto will see that iron ore piece start to grow as we see the iron ore majors sort of really start to integrate that hub-and-spoke model that we've developed in the gold industry. So strong customer base, high leverage to the gold price, but importantly, some further growth potential that is coming through not only our existing gold customers, but further commodity exposure through works with the Tier 1 iron ore miners. From an operational footprint perspective, we are very much Gold Fields WA focused, but have operations spread through the whole of the state and into Western Australia. The business has really sort of works on a hub-and-spoke model ourselves where we have central hubs in the likes of Kalgoorlie, Leonora, Mt Magnet and then Pilbara, and we'll service them effectively from those central hubs. But a large spread, large operational footprint, very much aligned to key customer base -- to a key customer base and sharing assets between those relative customers in an effective way to drive the return for ourselves. So we stand back and look at the year and look at what the business has been able to achieve. And for those of you that have been across our journey, the MLG business is one that has burned through a series of commodity price cycles and different challenges across our life. But in the last few years, we're really focused on ensuring we drive a business that is match fit, is delivering sustainably for our customers, but more importantly, also for our shareholders. And across the year, if we look at what we've been able to achieve and where we've situated the business to date, we can see ourselves now north of $500 million revenue run rate, over $200 million in plant and equipment, strong customer base. We've really leveraged technology within the business to ensure that we have accurate oversight to what's happening across the whole of the operations on a daily basis. Strong cash generation throughout the period, a very flexible debt structure that really sort of has set us up to be able to transition into the next few years in a very strong and effective way to deliver sustainably for our shareholders and also ensure that we're seeing not only the top line growth, but more importantly, that bottom line growth. And it's really all underpinned by the core business that has strong annuities earnings and a strong growth outlook. And with that, I'll hand over to Phil to run through the numbers.

Thanks, Murray. As Murray indicated in the opening slide, really strong performance for the year. Pleasing to see all metrics rising year-on-year. And as we've talked before, our margin is a key focus. And we see here that both the EBITDA and EBIT percentages are stronger than even revenue growth, which is really positive. We did have a small loss on sale or a loss on sale on some equipment. That's normal for us. We will cycle our CapEx planning and sell older and used assets that we're no longer needing for, and that will come ebb and flow at times. But overall, we're very pleased with the result and the strength of that position that we've had for the year. Just moving into the EBITDA position, it was a very strong performance in the second half. We did, as Murray said, indicate that would be the case. In the first half, we did retain -- we had a high CapEx. That was deliberate. It was an investment in some equipment and machinery to help us for the growth projects we had, but some of the timing of those projects commencing was later in the year. And what you're seeing is a result of those people that we held back in the first half in that equipment now being put and deployed into operations in the second half and delivering what is a very strong margin in the second half at 13.5%. So overall, we're delighted to start seeing that margin increase. We would like it to go faster. But at the same time, it is a whole portfolio, and we are adapting to our clients' needs at the same time. So it is expected that we will continue to see rising margins, and that's one of our major focal areas for the business. In terms of the balance sheet, well, the benefit of a strong performance means that your balance sheet tends to start to improve. And obviously, with the CapEx that we delivered this year, that has increased our net assets. So they're up 11% to $145 million. And as Murray mentioned, the NTA is also very pleasing at $1.07. Certainly, where we trade today, that represents a premium to the current share price. And as Murray also indicated, the net debt did decrease significantly, lowering our gearing to just 0.88x at the 30th of June. And talking about cash flow. Cash EBITDA is a good proxy for us, the cash flow. We do have some percentages in terms of conversion, slightly up or down, somewhere between 85% and 100%. This year, there was the commencement of tax payments, which is where we're making money, we're now starting to pay tax in cash, which is a positive sign. But overall, we're very happy with the operating cash flow. There was one significant debt that didn't come in on 30th of June, that does happen. Had that been the case, we would have been almost 97% conversion rate. So overall, pretty happy. In terms of CapEx, that number, as we indicated in the first half was motivated by the investment for future growth, and we'll probably see a similar CapEx number going forward. So what I would expect to see in the next 12 months to 2 years is a greater shift towards sustaining CapEx, and that's what we're planning for at the moment. But obviously, with this growth in revenue and the market opportunity we have in front of us, growth CapEx is still a very big part of it. As you'll see there, we have the Rio project that commenced just at the end of the year. Genesis is a business that's ramping up and delivering more volume, and we're adapting to that for them. And Evolution has been very, very active with us, and we appreciate their support and they're also a large scope that we're reacting to. Just going on to the gearing position, which is a very good story for us. Gearing is a natural part of our business because of the CapEx requirement we have. But what you're seeing here is a gradual decline in the gearing ratio and really quite strongly paid down debt in terms of the first half to the second half. And that's a real reflection of our focus on it, but also it shows the strength of the balance sheet as it starts to build more cash over time. We had a strong cash balance at the end of the year. And you'll see there that right at the 30th of June, we have an overdraft that we run of $20 million, plus the cash on hand means that starting this year, we had circa $29 million to $30 million of available liquidity, which is really positive for us. Murray touched on the way we finance the business. It is a very important structure for us. We do all of our debt outside of that overdraft that I mentioned through equipment finance contracts. They are typically fixed term -- they are fixed term contracts at fixed interest rates, typically for a tenure of 3, 4 or 5 years. And you can see there that the majority of those is with our manufacturers, our OEMs. And that's a really positive sign. We are buying equipment from those manufacturers, and they are financing it for us. We equally use the big banks and some finance companies. So it gives us a variety of debt providers to source and to benchmark against. And it does mean that we have a very flexible debt structure that means we pay debt back quite rapidly. So one of the issues that we have or not issue, one of the opportunities we have is that we keep that debt well under control despite quite a high CapEx level. And I'll pass back to Murray to talk about our outlook.

So in terms of where the business sits as we transition out of this year and into the next year and beyond, we think we do have ourselves in a very strong strategic market position. If we look across our service offering, we're sitting there with a large modern fleet. Obviously, as it stands today, we do have a large exposure to gold, albeit now also having some further growth opportunity within the Tier 1 iron ore space. So we see those delivering. It is very much a unique offering in that we are an infrastructure support business that uses mobile equipment to do that. And I think our strong history of growth has been able to demonstrate that as our customers invest in processing infrastructure, that has a direct correlation to the capacity for our business to drive growing revenue but also growing margins. And the key piece for that in terms of thinking about what that means for our underlying core business. Each year that goes by, the tonnes get further and further from each processing hub. And that is incremental growth that gets built into the business. However, we're seeing further investment in processing facilities driving material uplifts. We're seeing further opportunity coming through our existing customer base through M&A and integrating other operations in. So the underlying business is in a very strong position and is now setting us up for what is going to be a material year in front of us from both an opportunity but further growth perspective. If we look at the outlook and what we see coming down the sheet, obviously, that strong position, that investment in capital and particularly the gold price, but also that iron ore piece is really sort of driving the underlying business, and we see that continuing through the next 24 to 36 months and incrementally growing year-on-year. Our focus really internally has been about ensuring that we deliver sustainably. We drive that increase in return and getting our return on capital employed back to a sustainable level is really a sharp focus that we have been really driving through the business, and we see that being delivered further as we move into the next financial year. And importantly, and over and above that is what do we see as the next quantum shift for the business. We've spoken about this in past briefings is our business has now placed itself where it has a strong balance sheet has a strong underlying customer base that's driving physical growth in the business on a day-to-day, month-to-month basis. But as we transition out of that, and we take those tools that we put in place and leverage that balance sheet, we do see ourselves shifting up the value chain through the ability of unlocking processing infrastructure, be it through our customers or another third-party facility and unlocking smaller scale quality assets to drive further growth opportunity for the MLG business through both the delivery of service and the potential for profit share. So we do see that playing out over the next 12 months. We've been very disciplined in our approach to reviewing them as the underlying business has been very focused on delivery and has now set itself up to continue that growth trajectory into the coming year. We've also, in parallel, been working on what does that potential exposure to profit share and how do we unlock further processing infrastructure capacity for our customer base. So we stand here today with a business that's delivered very strongly across the year, has a degeared balance sheet, is in a strong position, materially reduce debt, generating cash with an underlying customer base that's growing and an opportunity to further grow the value chain for our business. So we are excited about what sits in front of us and are looking forward to getting stuck into the year ahead. And with that, I might open the floor to some questions. If you do have a question, can you please raise your hand on the app and you will need to unmute yourselves.

Congrats on the results. Just a question on margins. Normally, crushing and screening is the higher margin part of the business, but that really wasn't -- didn't look like it was contributing much in the second half to that. What is exactly driving the margin improvement in the haulage side of things? Is it just repricing contracts or like a churn of projects? What is it?

It's a good question, Steve. I think the key thing to remember there is, obviously, we had a quieter first half in crushing, and that did play out with crushing delivering in the second half. So holistically, across the year, crushing was delivered less than the previous year. However, that was because of that lag through the first half. I think the underlying haulage business is delivering materially for the business. And that has been a combination of some reset in rates, some use of technology within our own teams to drive productivity gains and just optimizing operations where we're seeing our customers sort of the M&A activity driving the opportunity for us to leverage our strategic footprint and get the most out of our equipment. And the combination of those things really drove that margin improvement across the second half.

Fantastic. I've got one more, if that's okay. Obviously, you've announced contracts with New Murchison and Fortescue, which will roll into FY '26. How should we look at crushing and screening for the next financial year?

I think the crushing and screening piece will continue to be a material part of our business. Obviously, we had that lag in the first half. We expect it to lift on a percentile basis back to sort of where it had been in the previous year, which on an aggregated basis, where you see a growing total revenue, it should contribute materially through this year and into next.

Great results. Look, just a quick one for me. So would we think about -- so a very strong second half, congratulations on that one that, that sort of run rate sort of continues into '27. Is there any reason why that wouldn't happen is the first thing. And the second thing is I think for -- you mentioned CapEx around the sort of same sort of levels as you sort of spent in '25, with a little bit of a sort of a swing towards sustaining but still some growth CapEx. The timing of deploying that in your minds, is that clear and present opportunities? Or is it spread through the year? Or how do we sort of think about that?